- Wealth PMS (50L+)
After an abrupt termination of a decade long relationship by US retailer Target, Welspun seems to have hit a wall with the giant retailer Walmart as well. Target threw out Welspun because Welspun apparently sold them sheets it said were Egyptian cotton, and Target found out it was not from Egypt.
Walmart has also had a similar issue. WSJ reports that Walmart is yanking off Welspun’s sheets from its stores, and will offer refunds to those who’ve already bought them. Because even they have found that Welspun mislabelled them as Egyptian cotton. But the story has a silver lining – that Welspun will continue to supply other stuff to the giant Walmart.
Apparently, Walmart had been warned in 2008 that the sheets weren’t using Egyptian cotton, but that investigation didn’t turn up anything sinister. And Egyptian cotton isn’t easy to find – but there are so many products that say they use Egyptian that the Courier mail even wrote:
According to the International Cotton Advisory Committee report Egyptian cotton accounts for less than 1 per cent of world production, which is dominated by India, China and the United States.
The best type of cotton requires extra long staples, but only 9200 bales of this cotton were produced from Egypt last year.
Even if this was used only for sheets, it would only be enough cotton to make 635,900 sheets. Hardly enough to fill shelves around the world.
Welspun’s shares fell to 46 from 110, and since had gone back to 60 before pulling back to 57 again. This news will hit the stock Monday.
Overall, a continued relationship is good news. But the mislabelling exercise will cost it dear in terms of reputation and growth prospects.
(Disclosure: No positions)